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Business News/ Market / Mark-to-market/  P&G Hygiene leaves Gillette behind
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P&G Hygiene leaves Gillette behind

The contrast in the share performance is linked to their financial performance

If Gillette can hold on to business performance and improve profitability of oral care business, it could be the stock to watch out for. Photo: BloombergPremium
If Gillette can hold on to business performance and improve profitability of oral care business, it could be the stock to watch out for. Photo: Bloomberg

Procter and Gamble Co.’s (P&G’s) listed subsidiaries in India have performed at opposite ends of the return spectrum in the past one year. Consumer goods stocks do not have much to speak for, with the S&P BSE FMCG index rising by just 1.4% in a year. But Procter and Gamble Hygiene and Health Care Ltd’s share has done well with a 38.8% rise while Gillette India Ltd’s stock has declined by 12.7%.

The contrast in their share performance is linked to their financial performance, a difference evident in their recent results. P&G Hygiene’s sales rose by 20% over the year-ago period to 500.4 crore in the March quarter and operating profit rose by 66.3%.

The company’s marketing efforts have helped both its Whisper sanitary napkins and Vicks cold and cough products grow, and it is also selling the Old Spice range of personal care products since March 2013. Though advertising and sales promotion (A&P) expenditure grew by 27%, and royalty increased in sync with sales growth, employee costs and other expenses declined, helping the improvement in profitability. The net result was its profit after tax rose by 55%.

Now, Gillette’s sales growth was much better than that of its sister company, rising by 27.7%, but profitability took a beating and operating profit declined by 58.2%. Several reasons could have caused this. Its material costs rose way ahead of sales at 39.3%. A weak rupee could be one prime cause, as Gillette imports nearly half of its raw material requirement by value. The company is also spending heavily on A&P, which rose by 86%, especially to support the launch of its relatively new toothpaste brand Oral-B Pro Health. And, in Gillette’s case, royalty rose by 32%, ahead of sales growth. As a result, net profit fell by 69%.

But the good news is that on a sequential basis, Gillette’s margins have shown a slight improvement. Its segment results also show its shaving products business is in fine shape, both on sales and profitability. The batteries business has seen stable sales while profitability has improved. The oral care business has seen sales stabilize, but is making losses chiefly due to marketing spends. As long as this continues, overall losses may still be visible but there could be a turning point, when the oral care business becomes big enough to fund marketing spends without eating into the profits of its other segments as much.

P&G Hygiene is likely to continue to be the preferred choice between the two, given its steady performance, but two out of three of Gillette’s businesses are faring better. If it can hold on to that, and at the same time improve the profitability of its oral care business, then it could be the stock to watch out for.

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Published: 22 May 2014, 06:12 PM IST
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